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No cause for overreaction to Rite Aid news, analyst says

BY Michael Johnsen

NEW YORK The waters might be choppy, but Rite Aid still stands a strong chance of successfully turning around its recently-acquired Brooks/Eckerd operations, Meredith Adler, research analyst for Lehman Brothers, expressed in a note published Friday.

The note comes one day after Rite Aid lowered its fiscal 2008 guidance for sales, net loss and adjusted EBITDA because of a soft economy and slow start to the cough/cold season according to the company. That news dropped Rite Aid’s stock by some 27 percent to less than $3 per share.

“We remain confident in the medium- and long-term outlooks for Rite Aid and the benefits of the Brooks/Eckerd merger … although we expect near term sales pressure to persist into 4Q,” Adler wrote.

“The conversion of the acquired stores’ front end to Rite Aid’s more successful approach is going smoothly from a process perspective,” she said. “It is, however, creating more pressure on earnings than expected.” Sales at the acquired stores have never been high, and the temporary distruption in stores on account of systems conversions and remodels, not mention Rite Aid’s discontinuation of certain inventory and unprofitable promotions, and sales have eroded even further, Adler said. “It is our view that Rite Aid essentially bought the Brooks/Eckerd pharmacy business with the intention—well underway now—to replace the acquired front ends with its more successful offering, merchandising plan and prototype layout. The first initiative is complete for all stores but the latter two have only just begun. … That means that the company will need to live with the sales and earnings weakness at the acquired stores for a few more quarters, though steady improvement should occur by the beginning of the new calendar year.”

Over the course of the third quarter, Rite Aid completed systems conversions at an additional 265 stores after having completed 300 by the end of its second quarter.

Rite Aid had changed all the merchandise at every store by the end of November, which includes the company’s private label offerings. And Rite Aid has completed minor remodels and remerchandised 150 stores, Adler reported, and consolidated 78 stores, transferring the prescription files of 71 acquired Brooks/Eckerd stores to nearby Rite Aid stores and transferring the prescription files of seven Rite Aid stores to nearby acquired stores.

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Jean Coutu acquires drug manufacturer Pro-Doc Ltee

BY Michael Johnsen

LONGUEUIL, Quebec The Jean Coutu Group on Thursday announced that it had acquired Pro-Doc Ltee, a Quebec-based generic drug manufacturer.

“The acquisition of Pro-Doc fits with our Canadian development strategy and is an interesting expansion of our core business,” stated Francois Coutu, JCG president and chief executive officer. “Pro-Doc has an excellent reputation and represents a significant growth opportunity. This transaction confirms our goals of continuing our growth and creating value for shareholders.”

Financial terms were not disclosed. As a result of this transaction, Pro-Doc will become a wholly-owned subsidiary of The Jean Coutu Group. The company will carry on its operations in Laval, Quebec and maintain an independent management team.

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Safeway announces breast cancer donations in excess of $1.3 million

BY Adam Kraemer

BELLEVUE, Wash. Safeway Thursday announced it donated at total of $1,365,185.13 for critical breast cancer research and prevention programs in Western Washington.

The announcement follows a month-long breast cancer fundraising and public service campaign in all of Safeway’s stores where customers, employees and suppliers all made donations to help find a cure and bring awareness to a disease that affects millions of women each year.

“As a longstanding partner with premier cancer research and treatment facilities in Western Washington, we remain steadfast as a company to aid in the fight against breast cancer,” said Cherie Myers, director of public and government affairs for the Seattle Division of Safeway. “By partnering with the most innovative research institutions and focusing on critical prevention programs, we are confident a cure will be found within our lifetime.”

The funds raised in Western Washington were presented to the following beneficiaries:

  • Breast Cancer Research Institute in the amount of $800,000
  • Seattle Cancer Care Alliance in the amount of $315,185.13
  • Dr. Julie Gralow of the Wellness Center at the Seattle Cancer Care Alliance in the amount of $200,000
  • Dr. Wendy DeMartini of Seattle Cancer Care Alliance in the amount of $50,000

Safeway has become a corporate leader in cancer research, providing nearly $70 million for breast cancer and prostate cancer causes during the past six years. The company dedicates the month of October to raising money for breast cancer research and prevention programs where customers are able to make donations and purchase specially marked “pink ribbon” products in stores.

In addition to raising funds, Safeway stated, the 2007 campaign also focused on educating women about detection and prevention of breast cancer, the second-leading cause of cancer deaths among women. The company reached millions of women through public service messages that appeared in radio commercials, electronic point-of-sale screens, in-store signage, weekly print sales circulars and the safeway.com website. Grammy and Oscar winner Melissa Etheridge, a breast cancer survivor, performed at The Safeway Foundation’s benefit Gala on Nov. 3, an event which raised $1.4 million for the foundation.

“The overwhelming support we received throughout our fundraising campaign only strengthens our commitment to work toward the day when medical research can find a cure for breast cancer,” Myers stated. “Our donation in excess of $1.3 million in Western Washington reflects the passion and true spirit of giving shown by our customers and employees.”

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